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Who is the next witness?
Mr. OSMERS. You may proceed, Mr. Maudlin.
Mr. MAUDLIN. Mr. Chairman, members of the committee, my name is C. V. Maudlin. I am the Washington representative of the National Association of Waste Material Dealers, Inc., which has its headquarters at 271 Madison Avenue, New York, N. Ý.
The association's membership is composed of firms located throughout the United States, engaged in the collection and processing of secondary metals, more commonly referred to as scrap or waste materials, such as scrap metals, wastepaper, scrap rubber, cotton and woolen rags and clips, and so forth.
As the economy of the country gradually returns to a peacetime basis, the members of the secondary materials industry increasingly feel the impact of Government competition on their operations.
This competition has been particularly acute in the sweating or melting of aluminum scrap and the preparation and baling of scrap metals by Department of Defense agencies.
Some of these Government operations in fields satisfactorily serviced by private enterprise were initiated by Government agencies as national defense measures and continued and expanded on the basis that they are prontable to the Government, although it has been definitely established that the continuation and expansion of such Government activities were displacing private industry which has historically handled the operations and is willing, able, and anxious to continued to do so.
The Government operations have been continued although it has been demonstrated before committees of the Congress, at which representatives of both private industry and the Government have testified, that, when all costs were determined and taxes were taken into consideration, private industry is able to do the job at a lower cost than the Government, and in spite of the fact that committees of the Congress have recommended to the Department of Defense that certain activities in competition with private industry be discontinued.
An example of competition with private industry by a Government operation, which has been recently expanded and which has definitely closed one private plant and curtailed the operation of others, is the sweating of wrecked aircraft aluminum scrap by agencies of the Department of Defense.
The history of this operation is rather long. I have covered it in some detail in a statement in which I have also included, insofar as the information is available, the data requested by the chairman of this committee as to the number of Government employees, value of Government product, and so forth.
I am submitting this statement, and ask that it be printed in the record following my testimony, and I will confine my remarks to a brief summary of it and our recommendations.
Mr. OSMERS. The statement will become a part of the record. (The statement referred to is as follows:)
STATEMENT OF C. V. MAUDLIN, WASHINGTON REPRESENTATIVE, NATIONAL
AssociATION OF WASTE MATERIAL DEALERS, INC.
GOVERNMENT-OPERATED ALUMINUM-SWEATING FACILITIES
An aluminum-sweating operation consists of placing prepared aluminum scrap in a specially constructed furnace in which the heat is regulated so as to melt or sweat the aluminum without melting the contaminants, such as iron, steel, and copper. Prior to placing it in the furnace, the aluminum scrap, usually wrecked aircraft aluminum scrap, is prepared by removing as many of the contaminants as is practical, and, when necessary, cutting the scrap into sizes suitable for charging into the furnace. The melted or sweated aluminum is drawn off into molds and is commercially known as aluminum pig.
The sweating of Government-generated aluminum scrap has been satisfactorily handled by operators of privately owned sweating furnaces since the technique of sweating was developed. During World War II, the Navy Department, under & cloak of secrecy, constructed four sweating furnaces. Between June 1951, and May 1952, the Department of the Air Force completed small sweating furnaces, referred to as pilot plants, at Kelly Air Force Base, Williams Air Force Base, and Holloman Air Force Base. After unsuccessful attempts to obtain concurrence of the National Production
Authority to the construction of large sweating furnaces at McClellan Air Force Base and Tinker Air Force Base, the Air Force, on April 22, 1953, authorized the construction of commercial-size furnaces at these two beses. The Commanding General at each base was informed by the Air Materiel Command Headquarters that a great deal of prudence has been required in connection with this plan in order that possible criticism of the Air Force may be avoided” and instructed that “due to possible criticism which may be forthcoming, it is desirable that close coordination be maintained between this headquarters and your headquarters.”
Upon learning of the plans of the Air Force to construct commercial-size sweating furnaces at McClellan and Tinker Air Force Bases, operators of privately owned aluminum-sweating furnaces met with Department of Defense officials, informed them that the furnaces would seriously injure the commercial sweating industry, and urged them not to construct the furnaces. These requests were denied and the industry representatives took their problem to the Select Committee on Small Business of the United States Senate. The committee made a thorough study of the situation and held a public hearing during the latter part of September 1953, during which the Department of Defense and representatives of private industry were given an opportunity to testify and present data. The report of the committee, which summarizes their findings, concludes with the following recommendation:
“On the basis of the testimony taken at the hearing and on the basis of all information contained in the files, your committee concludes that the operation of aluminum-sweating furnaces by the Navy and the Air Force constitutes unnecessary and unjustifiable competition with private enterprise. Your committee recommends that the Defense Department take steps immediately to remove the Government from competition with private industry in the operation of aluminumsweating furnaces."
(The section of the report on aluminum sweating is printed in full following this statement.)
During the investigation made by the Senate Select Committee on Small Business, the Air Force continued the construction and completed the aluminumsweating furnaces at McClellan and Tinker Air Force Bases. The furnaces were placed in operation in the fall of 1953. The operation of these furnaces by the Air Force has further curtailed the operations of privately owned aluminumsweating furnaces. The privately owned sweating furnace of the Mars Metal Corp., which was constructed at Sacramento, Calif., to sweat wrecked aircraftscrap from McClellan Air Force Base, has been shut down since sales of wrecked aircraft scrap were discontinued at McClellan Air Force Base and sweating was commenced in the Government-operated sweating furnace at the base.
When it became apparent that the Department of Defense would not delay the construction of additional sweating furnaces pending completion of the investigation of its aluminum-sweating operations by the Senate Select Committee on Small Business, operators of the privately owned sweating furnaces appealed to the House and Senate Appropriations Committees, requesting that they prohibit the use of funds obtained from the sale of scrap for the construction, acquisition, or operation of Government aluminum-sweating furnaces. The Senate Appropriations Committee, in its report to the Senate, dated July 17, 1953, with refer
ence to appropriations for the Department of Defense for the fiscal year ending June 30, 1954, included the following statement:
“Sec. 622: '* * * it is the belief of the committee that the agencies of the Department of Defense should exert every possible effort to dispose of scrap and salvage materials through scrap and salvage dealers and to avoid going into scrap operations in competition with such private businesses."
The chairman of the Senate Subcommittee on Appropriations, on August 13, 1953, wrote to the Secretary of Defense, calling his attention to the committee report and commenting on it, as follows:
AUGUST 13, 1953. Hon. CHARLES E. WILSON, Secretary of Defense,
The Department of Defense, Washington, D. C. MY DEAR MR. SECRETARY: I am writing to call your attention to the passage in the Senate report on the 1954 Defense Appropriations bill concerning section 622 of the act.
You will note that the committee expressed the belief that every effort should be made by the Department of Defense to dispose of scrap and salvage through the channels of private business rather than by going into scrap operations involving military funds.
The committee has been concerned over this matter because of reports reaching it of expenditures by various of the military services for permanent installations such as aluminum-sweating furnaces and baling presses which seem to directly compete with nearby private facilities.
I would appreciate your consideration of this matter and your cooperation in carrying out the committee's views. With kindest regards. Sincerely yours,
HOMER FERGUSON. Representatives of the privately owned aluminum-sweating furnaces and of the Department of Defense presented their views to the House and Senate Appropriations Committees when the Defense Department appropriations for 1955 were under consideration. A proviso was placed in the act making appropriations for the Department of Defense for the fiscal year ending June 30, 1955 (Public Law 458, 83d Cong.) reading as follows:
"SEC. 715. * * * Provided further, That no funds available to agencies of the Department of Defense shall be used for the operation, acquisition, or construction of new facilities or equipment for new facilities in the continental limits of the United States for metal-scrap baling or shearing or for melting or sweating aluminum scrap unless the Secretary of Defense or an Assistant Secretary of Defense designated by him determines, with respect to each facility involved, that the operation of such facility is in the national interest." This proviso should be helpful in preventing the construction of additional aluminum-sweating furnaces by the Department of Defense, but does not limit the operation of the existing furnaces which have curtailed the operations of the privately owned and operated aluminum-sweating furnaces.
Despite these efforts of the Senate Select Committee on Small Business and the Senate Committee on Appropriations to curtail the aluminum-sweating operations of the Department of Defense, the Air Force, and the Navy are presently operating the following aluminum-sweating furnaces in direct competition with the secondary materials industry and at a net loss to the Government without any indication that they plan to either curtail or discontinue their operations:
Kelly Air Force Base, Tex.
Naval air station, Jacksonville, Fla. Williams Air Force Base, Ariz.
Naval air station, Norfolk, Va. Holloman Air Force Base, N. Mex. Naval air station, Alameda, Calif. McClellan Air Force Base, Calif. Naval air station, San Diego, Calif. Tinker Air Force Base, Okla.
The following data on construction and personnel employed in operating the Air Force aluminum-sweating_furnaces were compiled from information submitted by the Department of Defense to the Senate Select Committee on Small Business:
In addition, the cost of rehabilitating an aluminum-sweating furnace at Pyote Air Force Base (operations have been discontinued) was reported as $13,551.56 and 27 laborers were used in its operation.
The Navy sweating furnace located at San Diego was completed in 1943 at a reported cost of $19,600. Information is not available to us as to the cost and date of completion of the other Navy sweating furnaces which were constructed under a cloak of secrecy during World War II. The personnel employed in aluminum-sweating operations are reported by the Navy to be as follows:
employed Naval air station, Jacksonville, Fla.
22 Naval air station, Norfolk, Va..
15 Naval air station, Alameda, Calif.
6 Naval air station, San Diego, Calif.
50 Available information indicates that aluminum scrap is sweated in the Department of Defense furnaces at an annual rate in excess of 10 million pounds, of which over 5 million pounds are sweated in the new furnaces at McClellan and Tinker Air Force Bases. The value of the aluminum pig produced from the sweating of this tonnage of aluminum scrap by the Department of Defense, at current market prices, would be approximately $1 million annually.
The seriousness of the removal of this large tonnage of aluminum scrap from the supply available to the secondary materials industry can best be understood when it is realized that the rate of operation of the private aluminum sweating industry has been decreasing and the industry is operating at only 40 percent of capacity at the present time.
The Department of Defense has attempted to defend its aluminum-sweating operations on the contention that such operations result in a profit for the Government. An analysis of available operating data demonstrates that the Government's aluminum sweating furnaces are being operated at a loss to the taxpayers and that the Government can realize a much larger net return from its aluminum scrap by selling it as scrap than by sweating it into aluminum pig, and selling the aluminum pig. In addition, the Federal Government, State, and local bodies would receive taxes from private aluminum-sweating operations.
In order to get an accurate comparison of the benefit to the taxpayers of the Government selling its wrecked aircraft scrap as scrap, versus preparing, sweating, and selling it as sweated aluminum pig, it is necessary to base the calculations on identical lots of wrecked aircraft scrap which have the same recovery rate. The recovery rate is the percentage by weight of aluminum pig that can be recovered by sweating from scrap in the condition that it is offered for sale as scrap. For the purpose of comparison, it is assumed that wrecked aircraft scrap with an average recovery rate of 60 percent can be for cents a pound and that the aluminum pig obtained from such scrap can be sold for 16 cents a pound. (These prices are the same as those used by the Department of Defense in data furnished to the Senate Select Committee on Small Business and are approximately the current prices.) On this basis, from a given lot of 100,000 pounds of aluminum scrap, which the Government could sell as scrap for $8,000, it could obtain 60,000 pounds of sweated aluminum pig for which, at 16 cents per pound, it would receive $9,600. Accordingly, the Department of Defense would receive an additional $1,600 or 1.6 cents per pound for preparing and sweating 100,000 pounds of wrecked aircraft scrap.
Under date of June 26, 1953, the Chief of Navy Material submitted a resume of the operations of the four Navy-owned aluminum sweating furnaces to the
Senate Select Committee on Small Business. This resume stated that the cost per pound for sweating aluminum scrap was as follows:
Cents Naval air station, Jacksonville, Fla
2. 13 Naval air station, Norfolk, Va
3. 00 Naval air station, Alameda, Calif.
2. 40 Naval air station, San Diego, Calif.
1. 66 The weighted average cost of sweating aluminum scrap in the four Navy furnaces was 2.4 cents per pound. These costs cover only the sweating operation and do not include the cost of preparation for sweating.
Under date of January 9, 1954, the Department of the Navy submitted additional information to the Senate Select Committee on Small Business in which it gave its operating cost of preparing and sweating aircraft scrap ás 4.76 cents per pound of aluminum pig produced. On the basis of the recovery rate of 78.7 percent given in the data furnished to the committee, this would be equivalent to a cost of 3.74 cents per pound of wrecked aircraft scrap processed. The Navy data were computed on the basis of 3,350,604 pounds of aluminum scrap processed during a 12-month period. During this period, the Navy sweating operations were operated at a loss of 2.14 cents per pound of scrap processed (the difference between the cost of 3.74 cents per pound for preparation and sweating and the 1.6 cents per pound increase in value due to sweating), or a total loss of $71,703 for 3,350,604 pounds processed. The taxpayers would have benefited by $71,703 plus the local, State, and Federal taxes which a private sewating operation would have paid, had the Navy sold its wrecked aircraft scrap as scrap, during this period.
Available operating data and costs on the recently completed sweating furnaces at McClellan Air Force Base and Tinker Air Force Base are based on the sweating of highly selected aluminum scrap, and no data are available to us from which we can compute the costs on the basis of preparing and sweating wrecked aircraft scrap from scrap in the form it was previously, offered to scrap dealers. The Deputy for Procurement and Production of the Air Force recognized this situation when, in commenting on the McClellan and Tinker sweating costs, he informed the Assistant Secretary of Defense as follows:
“There are so many variables such as scrap prices, ingot prices, percentages of recovery, types of material charged, and annual generations—that it is risky to attempt any exact projections of the significance of these figures over a year's
While some of the earlier costs at the two recently constructed sweating furnaces may indicate that the Air Force can obtain a greater net monetary return by sweating its wrecked aircraft scrap than be selling it as scrap, it is confidently predicted that when all costs are taken into consideration and the value of the scrap consumed in producing aluminum pig is determined on the same basis as if it was sold as scrap, it will be found that the new installations are also operating at a loss and that the taxpayers would greatly benefit if the Defense Department would discontinue its sweating operations and sell all of its wrecked aircraft scrap as scrap.
Scrap dealers are prepared to bid on, and to pick up at the bases, the wrecked aircraft scrap in the form it is generated, from complete airplanes, wings and fuselages, down to parts, engines, etc., of any size or condition. The scrap warranty clause in the sales contract, which requires that the scrap be used as a raw material, assures complete demilitarization of military aircraft and parts available for sale, as required by the basic policy of the Department of Defense, without any cost to the Government for demilitarization. Recently the Air Force offered and sold on competitive bids over 250 reclaimed B-29 airplanes which had been flown to Pyote Air Force Base, Tex. The planes were cannibalized by the Air Force so as to obtain the instruments and other equipment of value to them, which must be done regardless of whether the planes are sold as scrap or sweated by the Government, and then turned over to the purchaser who cut them up for removal and sweating. It was not necessary for the Air Force to cut or in any way further prepare these planes for sale.
Aluminum pig is not used by the Department of Defense or by any branch of the Federal Government. All aluminum pig produced by the Department of Defense is sold on the open market. There is no more justification for the Department of Defense to produce aluminum pig in competition with private industry than for it to produce deoxidizing aluminum ingot, casting aluminum ingot, or other items made from aluminum scrap, which the Department of Defense emphatically states it has no intention of doing. Even if the Department of Defense